The Effects Of Tight Budgetary Control On Employee Behavior In The Public Sector Of Jordan, Pakistan And Sweden

Mahmoud Al-Shaibie
Saima Batool

The Effects of Tight Budgetary Control on Employee
Behavior in the Public Sector of Jordan, Pakistan and
Sweden
Employee’s loyalty, Employee satisfaction, Job related tension and Employee’s
tendency towards data manipulation

Master’s Thesis in
Accounting and Control,
30 ECTS
Term: Autumn 2014
Supervisor: Prof. Mikael Johnson
Examiner: Prof. Sven Siverbo

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Abstract

This thesis aims to explore the effects of tight budgetary control on employee behavior
focusing on employee loyalty, employee satisfaction, job related tension and tendency towards
data manipulation in public sectors. The study explores the subject on the population of three
countries which includes Sweden, Jordan and Pakistan. In Pakistan and Jordan, no previous
study has ever been performed which tried to explore effects of tight budgetary control in
employee behavior.
Method: Keeping the above fact in view, method derived for this study was the combination of
qualitative and quantitative approach. Questionnaires were formulated and sent to employees of
the sampled companies receiving 740 responses. For qualitative method, 5 employees were
interviewed from entire three countries.

Finding: the study revealed that all three countries are experiencing tight budgetary control
whereas Jordan and Pakistan are experiencing it on higher level and Sweden is experiencing it in
lower level as compared to Pakistan and Jordan. As far employee behavior is concerned, both the
method proved that loyalty was negatively related to tight budgetary control for Pakistan and
Sweden whereas positively related in case of Jordan. Satisfaction is also negatively related to
tight budgetary control for Sweden and Pakistan while positively related for Jordan. Job related
tension and tendency towards data manipulation are positively related to tight budgetary control
for all three countries.
Research type: Master’s thesis.
Keywords: Tight budgetary control, employee behavior, employee loyalty, employee satisfaction,
job related tension and tendency towards data manipulation.

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Table of Contents
1.

2.

3.

Chapter: Background ..................................................................................................................5

1.2.

Introduction .................................................................................................................................. 5

1.2

Problem definition ........................................................................................................................ 7

1.3

Aim ................................................................................................................................................ 9

1.4

Research question......................................................................................................................... 9

1.5

Proposed research method........................................................................................................... 9

1.6

Structure of thesis ....................................................................................................................... 10

Chapter: Research Methodology and data collection ................................................................. 11

2.2

Research Methodology ............................................................................................................... 11

2.3

Data Collection ............................................................................................................................ 11

2.3.1

Surveys ................................................................................................................................ 12

2.3.2

Interviews............................................................................................................................ 12

2.3.3

Data analysis techniques..................................................................................................... 13

Chapter: Literature review ........................................................................................................ 14

3.1

Budget: ........................................................................................................................................ 14

3.2

Tight budgetary control .............................................................................................................. 16

3.3

Tight budget control as management control tool ..................................................................... 17

3.4

Employee interpretation of budget ............................................................................................ 18

3.5

Behavioral Variables and hypothesis formulation ...................................................................... 19

3.5.1

Loyalty ................................................................................................................................. 20

3.5.2

Satisfaction .......................................................................................................................... 21

3.5.3

Job-related Tension............................................................................................................. 23

3.5.4

Data Manipulation .............................................................................................................. 24

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4.

Chapter: Analysis ...................................................................................................................... 26

4.1

Quantitative Analysis .................................................................................................................. 27

4.1.1

Effectiveness of tight budgetary control............................................................................. 27

4.1.2

Loyalty ................................................................................................................................. 29

4.1.3

Satisfaction .......................................................................................................................... 32

4.1.4

Job Related Tension ............................................................................................................ 35

4.1.5

Data Manipulation .............................................................................................................. 37

4.2

Correlations Analysis ................................................................................................................... 39

4.3

Regression Analysis ..................................................................................................................... 41

4.4

Reliability analysis ....................................................................................................................... 47

4.5

Qualitative analysis ..................................................................................................................... 48

5.

Chapter: Discussion .................................................................................................................. 54

6.

Chapter: Conclusion .................................................................................................................. 55
6.2

Final Discussion ........................................................................................................................... 56

7.

References ............................................................................................................................... 58

8.

Appendix .................................................................................................................................. 64

8.2

Descriptive statistics and percentage analysis............................................................................ 64

8.2.5

Tight Budget Control ........................................................................................................... 64

8.2.6

Loyalty ................................................................................................................................. 67

8.2.7

Satisfaction .......................................................................................................................... 69

8.2.8

Job-related tension ............................................................................................................. 72

8.2.9

Data Manipulation .............................................................................................................. 74

8.3

Survey Form ................................................................................................................................ 76

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1. Chapter: Background

1.2. Introduction
Recent economic crises have forced many countries to pay more attention to their budget
settings and budget targets. Consequently strict checks on expenditures and close monitoring of

day to day activities of employees is taking place (Ocran, 2011) instigating dysfunctional
behavior by employees (Kihn 2011). Budget is defined as financial plan which mediate all the
business activities, where most of the focus is on expenditure (Harrison & Horngren 2008).
Budgets are not a recent phenomenon. Conventionally, it was defined as a technique of cutting
unnecessary costs and used as a basis of employee evaluation and rewards (Argyris, 1953).
A system of evaluating the performance of employees based on how company is able to achieve
their budget targets keeping the expenditures closely monitored as well as minimum is called
budgetary control. On the other hand, it is a mechanism which is meant to align employee’s
behavior in the direction which management wants them to proceed (Banks & Giliberti, 2008).
This study attempts to analyze the effects of tight budget on employee’s behavior. Employees
perceive budget achievement as a key to get many benefits like bonus, rewards or extra pays
and they are stressed to meet the targets by any means. Due to which budget targets are said to
generate tendency of dysfunctional behavior in employees. However, it is worth mentioning
that tight budget targets affect different employee behavior differently and it is not always the
case when employees tend to behave unfavorably in reaction to strict controls. Some employees
take tight controls as a challenge and get more motivated when budgetary controls are tight
(Bhimani et al., 2008). This study aims to discover these behavioral aspects produced as a
consequence of budgetary controls.
Implementation of tight budgetary control are the upshot of fiscal policies. Fiscal policy
determines whether tight budgetary controls are to be introduced or not. Governments of
underdeveloped countries are trying to handle the financial crises situation through adjustments
in fiscal policy and imposing budget cuts. Consequently, implementation of tight budgetary
control is increasing. For example, Governments of developing countries are forcing public
sector organization to reduce expenditure and survive within allocated budgets. Governments
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are much bothered about allocating resources and cutting undue expenditures from their yearly
budgets in recent years (Mirdala, 2009) making the budgetary targets difficult to achieve.
Developed countries are suffering from budget deficits as well and other critical issues like

unemployment now days (Hugh-Jones, 2014). Developed countries must do budget cuts so they
can decrease its budget deficit, government debt levels and unemployment. Tight budgetary
control must be incorporated as effective governance tool and elimination of undesirable
expenditure is needed for best management of available funds (ibid).
The above discussed issues are also confirmed by other studies. In a study by Ocran, (2011) it
is concluded that governments use fiscal policy as a tool to achieve sustainable economic
development. Governments reduce spending when they are faced with budget deficits. Budget
cuts are sometimes necessary in this situation and hence leading to the introduction of tight
budgetary control.
Lastly it is worth mentioning that financial crises affected not only the economy of
underdeveloped countries but also developed countries as well. As a result unemployment is
rising and downward trend in economic growth in recent years is visible (Ocran, 2011; Looney,
2004). For example, in Sweden it is predicted that current economic condition will remain
continued in next couple of years therefor Sweden has to cut budgets and apply tight budgetary
control (Regeringskansliet, 2013). Eventually, use of budgetary control and budgets will remain
in practice.
Moreover, the role of budget has been evolved over the years and needs to be explored more
with different aspects of behavior. It seems that difference in interpretation of these targets
generates difference of behavior from employees (Boland, 2001). Hence, it is interesting to
analyze the direction of behavioral aspects of employees when tight budgetary controls are
imposed on them. Hence this study aims to explore the effects of tight budgetary control on
employee behavior.
First chapter will discuss aim, problem definition, research questions, introduction to research
methods along with motivation for them and structure of remaining thesis.

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1.2 Problem definition
As stated earlier, this study aims to explore the effects of tight budgetary control on employee

behavior. The study will be conducted on three countries including Sweden, Pakistan and
Jordan. Motivation to perform this study on this subject and theses three countries are discussed
as under.
Tight budgetary control affects the behavior of employees but how it is influencing is yet to be
confirmed. There are many previous studies which have examined this but they revealed
contradictory results (Bento and White, 2006). Furthermore, motivation to conduct this study
is the research gap as no previous study in this area has been done in Jordan and Pakistan.
Therefore, examining the effects of tight budgetary control on employee behavior will make a
contribution to this area. Behavioral variables comprise employee loyalty, employee
satisfaction, Job-related tension and data manipulation by employees.
Many researchers referred in their research to conduct a research about relationship of tight
budget control and behavioral aspects. Kin (2012) sated that
“Future research could continue the analysis of budget targets in at least two ways. One of them
is that individual-level case (field) research would be a promising approach to further examine
processing of budget targets and its various behavioral aspects” (p.233).
Another study stated that although it has been 50 years since budget and behavioral aspects
related studies are being conducted regarding the relationship between budgeting and
behavioral variables such as employee’s commitment to organization, motivation, stress,
satisfaction and job related tension. However, these studies show conflicting results and a new
theoretical study is needed to confirm these results (Marginson and Ogden, 2005a). Thus, it is
evident that there is a research gap in this area and a study is needed to establish as well as
further strengthen the evidence regarding relationship of tight budgetary controls and behavior
of employees.
Kung, et. al, (2013) also advised to conduct a research in the area of budgeting decision and
behavioral aspects by stating that
“future research might also study the effects of budgeting characteristics on employee attitudes
and behavior. Recognizing the complexity associated with individual responses, it would be
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interesting to explore the mental states and behaviors of superiors in a budget model to examine
the reactions of subordinates to budgeting decisions” (p. 137)
This study tries to examine the influence of strict controls on few behavioral variables such as
satisfaction. Leat & El-Kot (2009) pointed out a research gap and stated that it should be
examined about what are the factors which affect employee’s satisfaction on a work place.
Conboy(2010) recommended to conduct a study about tight budgetary control and employee
behavior.

It is further stated that tight budgetary control is not always good. Although

budgetary targets are placed in practice to achieve organizational targets but they do not emerge
as beneficial all the time. Therefore, a detailed study is needed to explore which factor affect
the outcome of application of tight budgetary control and why the desired outcomes are not
always received.
Based on the above recommendations by various researchers, researchers of this thesis decided
to conduct the study analyzing the effects of tight budgetary control on employee behavior in
public sector of Jordan, Pakistan and Sweden. It will be interesting to find an evidence for this
area which may help in reducing the inconsistency of previous researchers and establish a new
framework. Moreover, no study about effects of tight budgetary control and employee behavior
has ever been conducted in Jordan and Pakistan. Thus, this study will be first of its kind and
will contribute to academic literature of both countries. Lastly, as recommended by Bhimani et
al., (2008) :
“one of the first and most interesting areas of behavioral accounting research has been the
analysis of budget targets” (p. 467) indicating that it is an interesting area to study.
Keeping in view the above discussed literature employee behavior is confined to four variables
which consist of employee loyalty, employee satisfaction, job related tension and tendency
towards data manipulation.

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1.3 Aim
Keeping into account the research gap indicated by various authors, aim of this study is to figure
out how tight budgetary control affects employee behavior focusing on employee’s loyalty,
employee satisfaction, job-related tension and employee’s tendency towards data manipulation in
public sector of Jordan, Sweden and Pakistan.

1.4 Research question
Research question for this study is as under:
How tight budgetary control influences the employee behavior
This question is sub-divided into following questions
1. How tight budgetary control affects employee’s loyalty
2. How tight budgetary control affects employee’s job satisfaction
3. How tight budgetary control affects employee’s job-related tension
4. Does tight budget control has any effect on tendency of data manipulation by employees

1.5 Proposed research method
In this section, method strategy is introduced and explained. The term method is defined as
combination of procedures and techniques which are used to analyze, interpret and collect data.
The term methodology is defined as the way research ought to be conducted (Bryman & Bell,
2007).
Research methods are categorized as qualitative and quantitative. Quantitative approach is
designed as a process of measuring data in numbers. It is very objective approach whereas
qualitative approach revolves around complementing the obtained data with the responses given
during interviews (Neill 2007). Bryman & Bell (2007) further stated that cross-sectional design
for instance; semi-structured interviews are considered as qualitative method. Whereas surveys
and structured interviews are considered as a quantitative method.

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Motivation for choosing the method
Qualitative method is used to develop a theory and quantitative method is used to confirm the
theory. Quantitative method is considered as more rational for comparison (Finn et al. 2000)
and qualitative method is more useful for justifications (Saunders et al, 2009). It seems that a
more rational outcome can be drawn when comparisons are accompanied by theoretical
justifications. The idea of combination of methods can be supported by Saunders et al (2009)
as they stated that when basic data for a research is not available a combination of qualitative
and quantitative method is most suited approach (Saunders et al, 2009). In past, no research
about tight budget control in Pakistan and Jordan has been conducted so suggestion of Saunders
et al, 2009 seems to be worthwhile. Looking into these perspectives, researchers of this thesis
decided to use a blend of qualitative and quantitative methods.
Subsequently, method to conclude this study consists of combination of quantitative and
qualitative method to measure the effects of tight budgetary control on employee behavior
focusing on employee’s loyalty, employee satisfaction, job related tension and employee’s
tendency towards data manipulation. Primary data approach is used for this study because no
secondary data is available to be used as a support for this study. To get data for quantitative
method, questionnaires will be sent to the employees working in public sector organizations of
Jordan, Pakistan and Sweden. To get qualitative responses semi structured interviews will be
conducted.

1.6 Structure of thesis
The structure of remaining study is as under:
Chapter two presents research methodology. It explains research method, data collection
instruments, brief description of data analysis tools, bases of hypothesis construction.
Chapter three aims to create a theoretical frame work by expressing previous researches
focusing on variables of this study subsequently forming the bases of hypothesis for this study.
Literature about budgetary controls, tightness of budgets, fiscal policy, behavioral variables and
employee’s interpretation of budget is presented.
Chapter four attempted to draw findings of qualitative and quantitative data and constructing an

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analysis by interrelating empirics, interviews, research question, hypothesis and theoretical
framework. This chapter contributes a descriptive, correlation and regression analysis based on
empirical data. In the end of this chapter reliability analysis is presented to signify reliability of
data.
Chapter five reflects upon the answers of the research questions and validity of hypothesis.
Implications of the study and ideas for future research are discussed.

2. Chapter: Research Methodology and data collection
The below mentioned section is about the proposed research methodology. This chapter will
discuss the aspects of research methodology approach, data collection process and hypothesis
formation. More specifically, this chapter will explain the research design elaborating about
qualitative and quantitative approach, methods of data collection and data analysis techniques.

2.2 Research Methodology
Research design or in other words, as Yin (2003) stated “a plan from getting here to there” of
this study is built on a combination of methods comprising quantitative and qualitative as stated
in the introduction section. Merging the qualitative and quantitative method can generate more
appropriate theories. Along with figures and numbers theoretical interpretation of facts is
sometimes very crucial to draw a scientific conclusion (Wengraf, 2001). Hence, blend of
qualitative and quantitative data can produce a rational conclusion in certain circumstances.
Researchers of this study are using both qualitative and quantitative method to measure the
effects of tight budgetary control on employee’s behavior revolving around employee loyalty,
employee satisfaction, job related tension and employee’s tendency of data manipulation.
Questionnaires, using already established theoretical framework as basis, are formed and sent to
employees and interviews are planned to take place.

2.3 Data Collection

After formulating research approach, then comes the trickiest part of the thesis. An appropriate
data collection method is essential for a successful completion of any study. Below is
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explanation of data collection process.
Sampling
Target population of this thesis included all the employees working in government sectors of
Pakistan, Jordan and Sweden. Sampling is discussed further as under for both quantitative and
qualitative data collection.
2.3.1

Surveys

Surveys were sent online to people working in different public sector organizations in all three
countries to collect quantitative data. In Sweden, questionnaires were sent to people working in
Universities, hospitals and Municipalities. In Pakistan, questionnaires were sent to employees
of Pakistan International Airline, Pakistan Railways, Pakistan Telecommunication Company
Limited and few Universities. In Jordan, questionnaires were sent to Social security
Corporation, Income and Tax department and Grater Amman Municipality. Questionnaires are
explained further in the next section.
Questionnaire consists of 32 questions. Each hypothesis is tested through few questions.
Ordinal scale was used to measure the responses of employees. In questionnaire a scale of 1-7
has been used where 1 show strongly agree and 7 show strongly disagree.
Response Rate, A total of 723 employees completed the questionnaire. Response rate is as high
as 120 % of the desired response rate. Due to sufficiency of time, more than desired responses
were receive.

2.3.2

Interviews

Interviews were conducted to get qualitative data depicting viewpoints of employees about the
effects of tight budgetary control on their behavior. 5 employees were interviewed to get the
views regarding effects of tight budget control on employee behavior.
To collect qualitative data from Sweden, an employee of Karlstad Municipality was
interviewed.
For Pakistan, two employees were interviewed. One employee was from Pakistan Railways and
the other is working in Pakistan Telecommunication Company Limited.
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Similarly for Jordan two employees were interviewed one working in Social security
Corporation of Jordan and Income and Sales Tax department of Jordan.
Interview Pattern
Interviews were conducted in following pattern. In first 15 minutes, employees were asked to
give their opinion about how they feel about tight budget control and the work environment
before incorporation of tight budget control. In rest of the time employees were interviewed
about questions mentioned in questionnaires with detailed discussion.

2 . 3 . 3 Data analysis techniques

Data analysis techniques used for this study include SPSS software which assisted in doing
correlation, regression and descriptive tests on the empirical data attained through
questionnaires. The results of these tests are discussed and analyzed in analysis section. These
tests are further explained below.
Descriptive statistical analysis is selected to be used so that results of each variable can be
discussed individually and independently without affecting or relating to other variables.
Descriptive statistics consist of mean values which depicts the degree of strength of a variable
and overall trend of the responses (Bedeian, 2014).

Correlation test is used to assess the relationship of behavioral variables with the tightness of
budget controls. Correlation is a data analysis tool which explains the sensitivity of interrelationship between two variables. Correlation coefficient ranges from -1 to 1. When
correlation coefficient is more close to 1, it indicates that variables are more positively
correlated to each other. On the contrary closeness towards -1 indicates a negative relationship
between the variables (Romo, 2012). Correlation tests are used to assess whether a positive or
negative relationship exists between two variables.
Another test used for analysis of the results realized during this study is regression test.
Regression analysis test is used for estimating and predicting the relationship among variables.
Regression analysis also assists in assessing the relationship of multiple variables. It depicts
how the value of a dependent variable changes when one of the independent variables is
changed whereas the other independent variables remain the same (Cohen et. al, 2003).
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Along with an appropriate method, a good study demands a sound theoretical framework which
aims to explore a variety of work done by previous authors. Next in this study is the theoretical
expression based on previous researches.

3. Chapter: Literature review
Considering previous studies while doing this research is very important to perform the study in
right direction. Literature review serves as the bases of hypothesis and analysis. Above all
literature review helps to compare the results with previous researches. Below mentioned is the
brief summary of what is going to be discussed in literature review chapter.
In the start of this chapter previous studies defining budgets and budgetary controls have been
discussed. After that, previous studies to create distinction between loose and tight controls has
been looked into. Fiscal policy of governments decides whether tight budgets should be
introduced or not so fiscal policy has also been discussed in this thesis.
This study revolves around employee behavior. Therefore, each behavioral variable has been
discussed individually. In this section previous researches have been presented illustrating
definitions, important aspects and contradiction among findings of various studies for each

variable. These studies serve as the bases of hypothesis. In the end, employees’ interpretation of
budget is discussed.

3.1 Budget:
Budget is defined as a management technique used to align the direction of employee’s targets
with the direction targets of company and company’s strategy (Drake and Fabozzi, 2010).
Budget targets are understood as financial plans, forecasts or estimates of expected future
outcomes that the management team has agreed on (Kihn, 2011). If this financial plan, budget,
is well understood by employees it can result in successful achievement of organizational
objectives and employee’s rewards. Otherwise it leads to dysfunctional behavior of employees
(Drake and Fabozzi, 2010). Boland (2001) stated that role, significance, use and purpose of
budget targets are understood differently depending on designation of employees and also from

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employee to employee.
Budget is used as a mean to communicate to employees what organization expects from them
and to coordinate the activities of the whole organization in the same direction (Bhimani et al.,
2008). After communication of budget targets information, targets become responsibilities and
commitments which are used as the basis of evaluations and rewards (Lukka, 1988b). When
budget targets become the base of evaluation and rewards, many behavioral aspects of
employees are affected due to that. Employees tend to show variety of behaviors when their
rewards depend on achievement of their budget targets (Naranjo-Gil and Hartmann, 2006).
Other studies show that

budgets are used to implement overall strategic plan of the

organization and communicating employees regarding how their role is defined in the strategic
paradigm of the company (Mintzberg, 1983; Goold & Campbell, 1987; Naranjo-Gil and

Hartmann, 2006; Bhimani et al., 2008).
Budget targets can be set to motivate good performance, since people are sensitive to large
goal-performance pressure and are motivated to decrease this pressure by improving their
performance. In addition to the above-mentioned definitions, budgets can be used as a way to
communicate and implement the first year of a strategic plan (Bhimani et al., 2008). It is worth
mentioning that budgets are associated with some negative and unfavorable consequences
regarding employee behavior. Employees feel pressurize due to budget targets which is
considered as reason for this unfavorable reaction (Drake and Fabozzi, 2010).
Many researchers strived in their studies to categories the types of budget. Mintzberg (1983)
classified the types of budget based on its purpose as whether the budget is just focusing on
planning or will be used for evaluating overall employee performance. Confirming the study
of Mintzberg (1983), Lukka (1988b) also distinguished the types of budget in same way as
whether it is used for goal setting (planning) or is being used as a basis of employee
evaluation. Naranjo-Gil and Hartmann (2006) categorized budget as either a way of resource
allocation or a basis for controlling employee. Along with the above classifications, purpose of
the budget also revolves around sharing information among the employees (Lukka, 1988b, p.
13; Naranjo-Gil and Hartmann, 2006).
Using the budget as a way of controlling has the most adverse consequences on behavior as
compared to the other types of budgets (Naranjo-Gil & Hartmann, 2006) figuring out these
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consequences is the main theme of this study.

3.2 Tight budgetary control
Budgetary controls are sometimes tight and sometimes loose. It is important to define when a
budgetary control is supposed to be known as tight control. Many previous researchers have
attempted to categories how a budgetary control can be distinguish as tight or loose (Fisher,
1995; Merchant,1998; Van der Stede, (2001). Study of Merchant (1985b, 1998) revealed that
budgetary controls are tight when employees are bound to do what their management wants

them to do. They are not allowed to deviate from boundaries prescribed by budget control.
Tight budgetary control is further explained as under by Van der Stede (2001) where he
emphasized on the following factors to measure the tightness of budgetary control:
(1) Definition of goals.
Tight budgetary control are said to be in place than budget goals are very well defined and
complete. Employees have no or less power to modify or argue about the goals.
(2) Frequent Communication of goals.
Communication of budgets targets is done more effectively and frequently when budget control
is tight. Frequent communication about the budget targets is done to ensure that employees
understand the targets well.
(3) Strict Monitoring.
Tight budgetary control is said to be imposed when it is frequently observed that whether
employees are meeting the targets properly and efficiently or not. No deviation from budget
targets is tolerated. Monitoring by management is frequent and more detailed.
(4) Rewarding.
Budgetary control is categorized as tight when evaluation and rewarding is done on the basis of
budget targets achieved. It further entails that failed to meet targets can result in no rewards.
Furthermore, it is stated, tight budgetary control shows higher involvement of top management
in everyday activities of employees (Anthony and Govindarajan, 2007). Top management

16


keeps the intimate knowledge of operational activities. Tightness of budgets can also be
assessed by observing the following points as stated by Van der Stede (2001).
(1) Degree of emphasis on achieving budget targets given to employees;
(2) Autonomy to modify budget targets during the year
(3) Focus on details of interim budgets
(4) How much management is ready to tolerate deviations in interim budget targets
(5) Level of involvement of higher management in the subordinate’s day to day activities

If all of the above characteristics are on higher side, it shows that budgetary controls are tight
(Van, 2001). On the contrary, if the above mentioned dimensions are on lower side, or not
being emphasized upon, budgetary controls are said to be loose. This study will focus on
tightness of tight budgetary controls.

3.3 Tight budget control as management control tool
Management control is the way of directing employee’s behavior and evaluating employee’s
performance (Anthony & Govindarajan 2007). As tight budget control is a mean of evaluating
employee’s performance, consequently making it as a tool of management control. Employees
are faced with a strict management control regime when tight budgetary control is imposed on
them. In most cases, employees have very least liberty to interfere in budgeting process and
they are bound to do what is defined in budget targets and follow the guidelines strictly.
Beyond the above, employees are watched very closely in their day to day operations. They are
not allowed to deviate from targets (Van der Stede, 2001). In flexible budget control, employees
participate actively in setting their budget targets as contrary to tight budgetary controls.
Although mechanism of tight budget control is introduced with the intention to get benefit from
it. But budget control mechanism has few weaknesses as a control mechanism . While setting
the budget targets management focus on long term growth but employee tend to focus on short
term growth to get rewards depicting dysfunctional behavior. It seems that tight budget control
is not able to make sure to keep the employee focusing on long term growth which is its

17


weakness (Merchant and Manzoni, 1989). Furthermore, study publicized that tight budget
control is a control mechanism where management gives more importance on specific budget
line-items, focusing to achieve them by any means within given time period ignoring some
other important areas which are unavoidable for future growth of the company (ibid).

3.4 Employee interpretation of budget

Interpretation varies from person to person depending on variety of factors. Employees
interpret things on the basis of their background, analysis skills and their circumstances.
Similarly every employee interprets budget targets differently and reacts according to his
perception (Emmanuel et al., 1991).
Previous researches show that employee’s interpretation is also effected by how well he
understands budget targets (Kvale, 1996). For successful implementation of budgetary controls
and budget target accomplishments, it is important that employees interpret the tight budget in
its right spirit. However, studies reveal that it is not the case all the time. Employees perceive
budgets differently. As Kihn (2011) says that budgetary targets can be interpreted differently
by each employee. Everyone’s perception is different for the role, background and purpose of
budget. The justification for this variance is said to be due to difference in subjective
interpretations and analysis skills of every employee.
Studies reveal that Interpretation of budget varies from employee to employee depending on
responsibilities assigned to him. For instance, accountants see budgets as a mean of doing
financial planning and cutting unnecessary expenditures which increases profits of the
company. They usually do not feel threatened with tight budgetary controls. They understand
budgets and their purpose quite well. Evidence suggests that there is very low incidence when
accountants do not understand the budgets. Whereas managers see tight budgetary control
contrary to what accountants think. They take tight budgetary control as constraint and a mean
of communication from management which restricts their circle of action only to the boundaries
of targets allocated in budget (Emmanuel et al., 1991).
Directors interpret the budgets differently as well according to their own spectrum of
responsibility. They use it as a way to motivate employees and to guide them towards the

18


direction assisting the overall achievement of organizational goals. They perceive it as a mean
of keeping the employees moving in same direction. Moreover, they use budget for authorizing
activities. Director use budgets to motivate employees while employees perceive it as a

constraint and are found to react unfavorably to these budgetary controls in many cases
(Ihantola, 2006).
When it comes to employee behavior Kihn (2011) concluded that not only perception of
budgets varies from person to person but also stated that budget targets influence different
employees differently. Getting similar understanding and similar behavioral consequences
within the organization is impossible to achieve. While explaining the reason of different
behavior from each employee Kihn (2011) explained that every person has different subjective
interpretation of every phenomenon. Eventually, they interpret the phenomena of tight
budgetary control differently and show different behaviors about it. Employees understand the
purpose of background of budgetary targets in contradictory and conflicting ways and react
accordingly which can damage the overall functional system of company.

3.5 Behavioral Variables and hypothesis formulation
In this study it will be analyzed how tight budget control affects behavioral aspects of
employees. Employee behavior is important because companies can only achieve budgetary
objectives if behavior of employees is aligned correctly. Otherwise company will fail to meet
budgetary targets (Hansen et al. 2003). Furthermore, tight budgetary control has an effects on
employee behavior, employees react differently to tight budget control because they predict the
budget outcomes differently ( Kihn 2011).
Therefore, it seems an interesting portent to study the relationship and effects of applying tight
budgetary controls on employee behavior. Although employee behavior has a lot of dimensions
however this study will focus on employee’s loyalty, employee satisfaction, job related tension
and employee’s tendency towards data manipulation only. As discussed earlier, all of the
research questions of this study are based on behavioral variables. In this part, a review of
literature will take place assisting in formulation of hypothesis for each research question.

19


3.5.1

Loyalty

Employee loyalty is the first variable to be examined for this study. Loyalty of employees is
very essential for an organization in such a competitive environment. Employee’s loyalty
entails the feeling of affection and commitment with the company and they thrive to create a
good image of the company (McGoldrick & Andre, 1997).
As stated above, employee’s loyalty exits when they stay with his employer and tend to create a
positive image of the organization in minds of the outside parties. Loyal employee owns the
company and tries to build the good reputation of the company by his word of mouth
(Beauregard, 2008). Loyalty entails creating good image of the company to the public.
Employees remain more dedicated to the company if they are loyal (Organ et. al 2006). Their
dedication remains firm if they are loyal with the company even in adverse circumstances in the
company. However, it is not always the case that employees remain loyal when situation is
adverse (Ibid).
Loyalty is a psychological condition which affects the behavior of the employees towards the
company, although loyalty is totally dispositional in nature (Emsley, 2001). There are many
factors which can influence employee’s loyalty. Loyalty changes with different situations and
circumstances surrounding the organization but strict management controls change the
employee loyalty the most (Collins and Han, 2004). As budgetary control is a management tool
so tight budget control can affect the loyalty of employees.
Tight budgetary control mechanism is applied by management with the view of increase in
organizational as well as employee performance. However, studies proved that this is not
always the case and strict controls seem to have negative impacts on employee’s behavior in
most of the cases. Employees are less loyal when tight controls are enacted and they only focus
on short term goal as to earn rewards. They never always remain so loyal to think about
organizational growth in long run (Davila and Wouters ,2005).
Studies reveal that when employees become disloyal they never bother to present a good image
of the company. They, instead of portraying good image, start to say bad things about the
company ruining the company image in market (Shields et al., 2000). Moreover, employees

take it as a burden when they are being evaluated on the basis of the targets that they do not
know anything about and find hard to achieve which can decrease loyalty (Luft and Shields,
20


2003). Another study stated that employees become more dedicated to the targets when their
opinion about their duties targets are heard and considered while achieving. In that situation
they remain loyal to the company as well as committed to their job (Kung et.al, 2013).
As far as tight budgetary control is concerned, it has also been observed by Emsley, D. (2001),
that increased emphasis on budget targets can reduce loyalty and increase stress. Employees
tend to show negative behavior when they are evaluated on the basis of tight budgetary targets.
Day to day monitoring of employee’s operations increases pressure on employee, show distrust
and reduce loyalty (Emsley, 2001).
Keeping in consideration the above research, research question one will be studied from
following hypothesis:

 H1:

Tight

budgetary

control

has

negative

effect

on

emplo yee’s lo yalty
However actual investigation will reveal whether tight budgetary control will increase loyalty
or not in the countries of this study.
3.5.2

Satisfaction

Employee satisfaction is another variable which is being studied in this research. Employee’s
satisfaction is not a new phenomenon as it has many previous researches based on it. Employee
satisfaction is the satisfaction of employees with their jobs or the degree to which employees
like their jobs (Spector, 1997). In last many decades, employee satisfaction is considered as
important behavioral aspect as well as important elements of organizational management
(Lofquist & Dawis, 1969; Smith et al., 1969; Locke, 1976;).
Budgets are regarded as an important management control system. Thus, employee satisfaction
is important when management tend to strongly emphasize the budget targets and evaluate
employees thereof (Brownell & Dunk, 1991). Furthermore, organizational performance highly
depends on employee satisfaction. If employees are not satisfied their maximum output can
never be utilized by the company (Cranny et al., 1992).
Employee’s satisfaction with his job depend on many aspects which include

working

conditions (Mozina, 1991; Miskell, 1994) working hours which can be flexible or strict (Pierce
21


and Newstrom, 1980; Ronan, 1981; Christensen and Staines, 1990) image of the company in
the market (Mulej, 1986) benefits and rewards along with the salary (Hanneman and Schwab,

1985; Brecko, 2005) appreciation from superiors and acknowledgement of work (Rosenbloom
and Hallman, 1991), level of output given by employees (Tsui et al., 1997; Joy-Matthews et al.,
2007; Noe, 2008), nature of the job which means whether the job is temporary or permanent
(Maslow, 1997; McGregor, 2002) and lastly the environment of the company which affects
employee satisfaction because it is sometimes very friendly or very reserve. Nevertheless,
organizational environment has a huge influence on employee’s satisfaction (Gregor, 2002).
All these above mentioned aspects have a contribution in building the level of employee’s
satisfaction. When organizational environment is too strict, for example companies where tight
budgetary controls are imposed and they are being closely monitored, employee’s satisfaction
tend to be very low. They get a feeling of distruct and a threat to their jobs (Covaleski et al.,
2007).
Kung, Huang, & Cheng, (2013) stated that employee’s satisfaction is decreased during tight
budgetary control regime because management emphasize too much on assigned duties
hindering employees from giving full output. Radu (2001) emphasized that when employees
have some liberty to amend their duties they feel increased satisfaction. It is further stated that
close monitoring of duties makes the employees dissatisfied.
When employees are evaluated on the basis of budget target achievement they feel alienated to
company and get restless and dissatisfied. Secondly, they feel stressed about their rewards
which are based on target achievements (Radu 2001) which makes the employees dissatisfied.
Furthermore, it has been concluded in previous research that increased tightness of budgets tend
to decrease satisfaction of employees and they become frustrated very quickly. Employees get
de-motivated in the early stage of target achievement (Covaleski et al., 2007).
Study of above literature directs to form hypothesis for research question two as under:

 H2:

Tight

budgetary

control

has

negative

effect

on

emplo yee’s job satisfaction
Although many researchers have already examined the relationship between tight budgetary
control and employees satisfaction (Govindarajan, 1988; Brownell & Dunk, 1991) in various
22


countries. However, effects of tight budgetary control on employee satisfaction in Pakistan and
Jordan will be assessed after the performance of actual study as no other study has been done
before in this area.

3.5.3

Job-related Tension

Job related tension arising due to strict control is being studied since decades. Job-related
tension is most obvious employee’s reaction on tight controls. Job related tension is defined by
Fairbrother and Warn (2003) as tension involving work and created when employees are not
able to meet their job requirements and not able to manage the pressure of work. Often job –
related tension is created among employees after implementation of tight budgetary controls.
Hopewood (1972) stated in his study that if management will impose strict budgetary control, it

is very likely that employees will suffer from job related tension. It will also develop negative
job related attitude and dysfunctional behavior of employees.
Many previous studies have discussed different aspects of job related tension. Sadler-Smith et
al. (2003) studied the reasons of job related tension and concluded that it can be generated
because of many other variables which are over emphasis on duties by high ups, social issues,
job insecurity etc. Another study which has examined job related tension, was performed by
Least and El-Kot (2007) which investigated the job related tension with reference to socio
cultural as well as economic context of Egypt. It has been established that tension on work can
be decreased if management shows flexibility to employees in job related matters.
As stated earlier if budgets are too hard for employees to achieve, they create job related
tension. Nelson and Burke (2000) accentuated that there is a link that might be found between
some aspects of the work related tension and difficulty in budgets which generates conflict
within organization and negative employee behaviors. On the other hand, job related tension is
minimized when goals and targets are discussed with employees and they can make few
acceptable amendments (Kahn et al., 1964; Rizzo et al., 1970).
Many studies focus on discovering ways to reduce job-related tension in the era of strict
control. Job-related tension can be reduced by having trust within the company (Cook & Wall,
1980). This trust should be among the employee and management (Staples, 2001).

23


Another study stressed that when employees failed to meet the expectations of management and
are not allowed to deviate from assigned duties, job-related tension is increased (Aycan et al.
(2007). Results of above discussed study are also consistent with the results of other studies.
Leat and El-Kot (2007) who stated that employees become uncomfortable and stressed when
there is too much work pressure.
Fairbrother and Warn (2003) further confirmed that there is a strong relationship between job
related tension and other factors on work place emphasizing on strict controls. Strict controls on
employees make it difficult for employees to manage the work pressure and expectation from

their high ups. This issue was also confirmed from earlier studies conducted by Burke (1988) ,
Leong et al. ( 1996) and Sullivan and Bhagat, (1992).
In sum, hypothesis for question three is derived from above discussed literature which
establishes that:
 H3:

Tight

budgetary

control

has

positive

effect

on

emplo yee’s job-related tension
Nevertheless, researchers of this study can only confirm whether tight budgetary control
increase employee’s job related tension or not after the analysis of data from survey and
interviews. Though previous researches are supporting this hypothesis but whether these studies
coincide with the effect of tight budget control in Pakistan, Sweden and Jordan will be proved
after performance of survey and interview.
3.5.4

Data Manipulation

Employee’s tendency towards data manipulation is the last variable to assess employee
behavior in this research. Problem of data manipulation and misstatement of data is recently
grown too much since the scandals of Enron and WorldCom (Nguyen, 2014) but it is not a new
phenomenon. It was early 70s when Hopwood (1972) focused on employee’s tendency to
manipulate financial figures indicated that strict budgetary controls and using budget targets for
evaluation and rewards can lead to dysfunctional employee behavior. Employees tend to
manipulate accounting figures to earn financial rewards and to save their jobs. Employees not
only show negative social attitude but also misstate revenue figures.
Recent studies also show that employees used to manipulate financial figures and earning

24


through accruals to sustain and handle budgetary pressure. A study revealed that after
incorporation of Sarbanes-Oxley Act of 2002, employees are doing real account manipulation
as an alternative to accrual manipulation. Employees manipulate accounting figures through
many ways like writing down discretionary expenses, overestimating of the sales, overstating
purchase discounts, showing lenient credit terms and tax evasion (Cohen et al., 2008) to show
favorable accounting figures and earn rewards (Zang, 2007).
Few other studies referred that manipulation of accrual and real earnings is done for various
reasons. Nevertheless, employees have the tendency to do this when they face pressure
(Graham et al., 2005). Zang (2007) also confirmed that employees tend to manipulate financial
figures and to show more sales and earnings. Employees tend to do earning management
because of the rewards which are associated with the achievement of earnings.
Exploring further literature, Ibrahim, et. al (2011) while concluding their study stated that
employees violate GAAP trough many ways. They show favorable revenues, strict terms for
accounts receivable and lenient terms for credits. Among all the above, revenue overstatement
is most common when employees have to meet financial targets and they are under rigorous
controls.
Federal Bureau of Investigation did a legal crack down on the companies doing financial figure

manipulations. It is found that recently revenue over statement has been significantly increased
as compared to last few decades due to difficult budgetary pressures aroused due to fiscal
policy. The study further indicated that incidence of revenue figure manipulation from 1997 to
1999 is doubled as compared to 1988 to 1996 (Schoenberger, 2001). When employees are overburden and their rewards and evaluation depend on their financial targets achievement, they are
inclined to do accounting figure manipulations (Callen et al. 2006).
Few other researchers also conducted their studies regarding employee dysfunctional behavior
focusing on data and accounting figure manipulation in the time of too much work pressure.
Some researchers concluded that firms showing losses are more inclined to do data
manipulation as they are more under pressure due to budget constraints and acquisition threat
(Rangan 1998, Teoh et al. 1999, and Shivakumar 2000).
To analyse the effects of tight budgetary control on tendency of data manipulation following
hypothesis is formed:
25